India, Inc Trains Its Eyes Abroad

Policy paralysis, bureaucratic delays, a shambolic national infrastructure and a fraught political environment are propelling India Inc’s cash-rich emerging multinational enterprises on a search for big-ticket investments overseas.

With the Congress-led ruling United Progressive Alliance (UPA) buffeted by corruption scandals, policy U-turns and the inability to get on with the basic task of governance, the pace has picked up, with disenchanted Indian companies going abroad for investment in countries as far flung as Argentina, Africa and Abu Dhabi.

Reserve Bank of India data show that Indian companies carried out more than 400 overseas investment transactions that resulted in outward foreign direct investment of US$3.46 billion during September 2011 alone. Outward investment by India companies or entities was at US$19 billion for the first six months of the fiscal year 2011-12.

It is a depressingly familiar phenomenon, stretching back to the days when the country was ruled by the import-substitution philosophy, according to Prema-chandra Athukorala, writing in a 2009 research paper for the Asian Development Bank:

“There is evidence that the constraining effects of government policy on business operations played a pivotal role in the emergence of Indian MNEs,” Athukorala writes. “During this period, many big industrial houses in India felt constrained not by the lack of profitable market opportunities at home, but by government legislation that created market imperfections and distortions affecting their ability to expand, diversify, and export.”

According to the India Brand Equity Foundation, a trust established by the Ministry of Commerce and the Confederation of Indian Industry, Indian companies are on a continuing search for new investment destinations.

“Despite India’s vast opportunities across under-penetrated sectors, companies are venturing abroad for inorganic growth," HDFC Securities analyst Anupam Gupta wrote in a 2011 report. “While this is also partly driven by rising global aspirations for Indian companies, another reason for this is a tough competitive field, made no easier by the unpredictable regulatory environment". . . .